SIM Sector Presentation: Information Technology. Presenters: Evan T. Sarosi, Guillermo A. Schnell, and Regine See

Transcription

1 SIM Sector Presentation: Information Technology Presenters: Evan T. Sarosi, Guillermo A. Schnell, and Regine See

2 Agenda Part I Part II Part III Business Analysis Sector Overview Economic Analysis Recommendation Financial Analysis Valuation Analysis 2

3 SECTOR OVERVIEW 3

4 Information Technology Sector - Industries Technology Software and Services (software in fields such as Internet, applications, systems, databases, management, home entertainment) Information Technology Consulting Services Data Processing and Outsourced Services Technology Hardware and Equipment (manufacturers/distributors of communication equipment, computers/peripherals, electronic equipment/related instruments Semiconductor and Semiconductor Equipment Manufacturers 4

5 Size Market Capitalization - $5.87 Trillion As a % of S&P % 5

6 Prominent Companies Apple HP IBM Amazon Microsoft Google Intel Cisco Oracle Dell 6

7 Performance Year to Date (3.47%) Quarter to Date (4.23%) 7

8 BUSINESS ANALYSIS 8

9 Business Analysis User/Geography - Customers include households and businesses across the world - IT is indispensable for nearly every other sector/industry Rapidly changing competitive environment - Companies must keep pace with technological trends to maintain/capture market share 9

10 Life Cycle/Business Cycle IT generally overperforms during early/middle states of the business cycle IT consistently underperforms during late and recession stages of business cycle Cyclicality is affected by a number of factors - Interest rates/credit movements affect business customers ability to finance products - Economic factors impact disposable income available to households - IT is generally heavily capital intensive interest rates/credit environment heavily affect the firms ability to finance their investments IT is becoming increasingly globalized strong growth opportunities in emerging markets General decrease in product life cycles result of technology change/innovation 10

11 Porter s Five Forces Competitive Rivalry High Competition based on price, product offering, technological development, market economics Barriers to Entry High - Capital Intensive - Network Effects - Large Economies of Scale Availability of Substitutes - New innovations help to dictate market shares - Industries are highly fragmented 11

12 Porter s Five Forces (continue) Buyer Power Medium - Buyers willing to pay premium for quality, reliability - Switching costs vary by customer - Buyers of large amounts do hold clout, some power Supplier Power Medium - Firms demand reliability from suppliers, provides pricing leverage for reliable suppliers - Vendors loo to establish lasting partnerships lock-in effect 12

13 ECONOMIC ANALYSIS 13

14 Unemployment rate vs. IT Sector Tech Unemployment Rates 14

15 Gross Domestic Product (GDP) vs. IT Sector 15

16 Consumer Price Index (CPI) vs. IT Sector 16

17 Consumer Price Index (CPI) vs. IT Sector

18 FINANCIAL ANALYSIS 18

19 Revenue vs. Gross Margin vs. Profit Margin S&P 500 INFO TECH INDEX

20 Gross Margin Gross Margin 54.58% 51.10% 50.57% 47.41% 48.41% 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 20

21 Gross Margin IT vs. Others INFO TECH 21

22 Profit Margin IT vs. Others INFO TECH 22

23 ROA and ROE ROE 19.41% ROA 9.17% 23

24 ROE IT vs. Others INFO TECH 24

25 ROA IT vs. Others INFO TECH 25

26 VALUATION ANALYSIS 26

27 IT Sector Basic EPS 27

28 IT Sector P/E 28

29 IT Sector P/B 29

30 IT Sector P/S 30

31 P/E Multiples Information Technology High Low Median Current S&P Activision Vantiv Micron

32 RECOMMENDATION 32

33 Recommendation Sell in short term IT sector is cyclical Current state of business cycle is late (IT tends to underperform late in the business cycle). Current portfolio is overweight relative to the S&P500. Hold in long term IT sector has historically outperformed the S&P500. EPS ratio is higher. Customer demand will continue to be strong given the indispensability of the products offered by the sector. 33

34 Questions? 34